Consider how White Valley Brook Park Lodge could use capital budgeting to decide whether the $12,000,000 Brook Park Lodge expansion would be a good investment. Assume White Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) i (Click the icon to view additional information.) Read the requirements. Requirement 1. Will the payback change? Explain your answer. Recalculate the payback if it changes. Round to one decimal place. Select the formula to calculate the payback period Amount invested Expected annual net cash inflow = Payback The payback will continue to be 3.9 years. The residual value does not affect the computation of the payback and the payback method does not consider cash flows that occur after the payback period. Requirement 2. Will the project's ARR change? Explain your answer. Recalculate ARR if it changes. Round to two decimal places. Select the formula to calculate the ARR. Average annual operating income Average amount invested = ARR The ARR will now be 22.36 %. The ARR changes when the residual value changes to zero. The average annual operating income (numerator) will be higher because the depreciation expense is higher Additionally, the average investment (denominator) is lower when the asset does not have a residual value. X X Data table More info Requirements Number of additional skiers per day 121 skiers Under the assumption that the expansion would have a residual value of 1. Will the payback change? Explain your answer. Recalculate the payback if it Average number of days per year that weather conditions 152 days $500,000, the managers calculated the payback period to be 3.9 years, the ARR to be 26.44%, the average annual operating income to be $1,652,356, the average changes. Round to one decimal place. allow skiing at White Valley amount invested to be $6,250,000, and the average annual net cash inflow to be 2. Will the project's ARR change? Explain your answer. Recalculate ARR if it Useful life of expansion (in years) 8 years $3,089,856. changes. Round to two decimal places. Average cash spent by each skier per day 245 3. Assume White Valley screens its potential capital investments using the Assume that White Valley uses the straight-line depreciation method and now following decision criteria: Average variable cost of serving each skier per day 77 expects the lodge expansion to have zero residual value at the end of its eight-year life. Cost of expansion 12,000,000 Maximum payback period 4.8 years Discount rate 14% Minimum accounting rate of return 16.95 % Will White Valley consider this project further or reject it? k answer Print Done